Factory output weakness tempers in May

MANILA, Philippines — A slump in local manufacturing persisted in May, albeit at a slower pace than the preceding month, a tempered contraction that bodes well for a complete rebound in the coming months with the economy back in business.

The volume of production index — a measure of factory output — shrank 40.3% annually in May, a tad slower than 43.6% drop in April, but worse than 7.8% contraction same period a year ago, the Philippine Statistics Authority reported on Tuesday. 

“The low production and sales indices for the manufacturing sector are expected given that most of the country was still on ECQ (enhanced community quarantine) in May. Demand was also subdued as people’s mobility remains limited,” Acting Socioeconomic Planning Secretary Karl Kendrick Chua said in a statement.

“Despite this, we are seeing some signs of resurgence of the sector. As we transition to a new normal, we expect gradual recovery with improvements in logistics, particularly in the transport of essential goods and raw materials,” he added.

The recovery was prompt with more manufacturers operating, and those already running producing more. Average capacity utilization, which gauges these activities, rose to 73.4% in May from April’s 71.2%. 

Manufacturing of essential goods such as food and toiletries were exempted from movement restrictions enforced from March 17 to May 31 in the entire Luzon. But since a large chunk of industries remained shuttered at the time, while others were in skeleton force, manufacturing still felt the brunt of the pandemic.

Recovery seen

In May, the impact of the coronavirus disease-2019 (COVID-19) was still evident, with all industries still in the red. Production volume of machinery products plummeted 61.5% annually from April’s 62.4%, while that of electrical machinery and basic metals sank 33.7% and 43.6%, respectively. 

These industries were crucial on infrastructure building, which was also halted for most of the lockdowns.

Even food manufacturing, despite all its exemptions, slumped 29.1% annually in May, worse than the 26.1% in April, as bottlenecks in deliveries hit factories.

“Although capacity utilization has increased, actual production has not pulled through yet. But, this may also be expected because June was actually the start of the general easing of restrictions on economic production in general,” said Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines.

That said, Asuncion, like Chua, was optimistic June figures would show a turnaround on factory output with Metro Manila and neighboring areas already under a looser general community quarantine from June 1.

As it is, the National Capital Region as well as neighboring Calabarzon account for 73% of economic output, hence their shutdown had a devastating impact. “I do expect an uptick in production in the coming months as the economy starts to resume production activities,” Asuncion said.

Apart from food, machineries and metals, most notable declines were recorded in fuel whose production slumped 92% year-on-year, followed by transport equipment (-80.3%), footwear and wearing apparel (-78.7%), tobacco products (-71.9%) and beverages (-54.6%).

“As more firms reopen, we need to remind everyone that the risk of COVID-19 infection remains. It is very important for firms to strictly comply with minimum health standards to mitigate risks in the workplace,” Chua said.